Thursday, February 9, 2012

The Future of Social Security Disability

The Future of Social Security Disability
How does the future look for the Social Security Disability program? Is SSD solvent? What are the origins of the current SSDI debate? Learn more from Midwest Disability, P.A.

February 09, 2012 /24-7PressRelease/ -- In early December 2011, the House Committee on Ways and Means held the first hearing of a series on "Securing the Future of the Social Security Disability Program." During testimony, witnesses spoke on the importance of the program, the exhaustion of the SSDI trust fund and the potential for reform.

The Social Security Disability Insurance (SSDI) program has been in the news for quite some time now, especially since the Social Security Administration trustees announced the disability trust fund will be unable to pay full benefits starting in 2017 or 2018. Critics of SSDI have said that the program is a burden on taxpayers, is not strict enough and is too subjective. Testimony from the December program shows these points are inaccurate and that the Social Security Disability program is solvent.

History of the SSDI Debate

Committee Chairman Sam Johnson began the December program by discussing the history of SSDI. The cash benefit program was signed into law by President Eisenhower in 1956, during a time when the majority of families only had one breadwinner -- a time without internet and a time with shorter life spans. Even then, there was debate about the program's subjectivity.

Today, the SSDI landscape has changed dramatically. Steve Goss, the Chief Actuary of the Social Security Administration, highlighted the changes that have affected SSDI:

- Baby boomers have reached prime disability ages

- Women have entered the workforce and more women are working consistently enough to be insured by SSDI

- Women used to be less likely to be disabled than men, but are now on par with men

- People are becoming disabled earlier in life

The economic recession has also added to the cost of the SSDI program. There has been a spike in the number of SSDI applicants, and SSDI recipients, in recent years.

The SSDI Prognosis: Not Bad

The data shows that the program is not working the same way it once did. Demographics have changed, and many would argue that the program has become unsupportable and should therefore undergo substantial reform. However, the problem is not as massive as SSDI opponents and news media would make it seem.

According to U.S. Congressman Xavier Becerra, SSDI has taken in 14.6 trillion dollars and has only paid out 12 trillion since its inception. Steve Goss adds that we are at the peak of the problem right now. "We have already moved into the worst of times." Baby boomers have reached their prime disability ages, which means disability insurance has reached its peak cost. Women are now on par with men regarding the number eligible for SSDI as well as the number receiving SSDI. The SSA expects stability in the future. Similarly, the shift toward disabilities earlier in life has leveled out.

What does this mean? According to Goss, the cost of SSDI is at its highest right now and is even declining. The SSA has not projected it to go higher. Furthermore, it's "on a sustainable course." While the Social Security trust fund could be exhausted in 2017, tax income will still cover 86 percent of benefits. By 2085, there will still be enough money from tax income to pay 83 percent of benefits.

A Necessary Program for Many Americans

Andrew G. Biggs, resident scholar at American Enterprise Institute, argued that the number of people receiving SSDI is more than what you would expect from an aging population, especially during a time when the jobs are less physically demanding and people have higher incomes. He stated that employers need to provide reasonable accommodation for individuals with disabilities to keep workers working. He also believes that Congress needs to decide who is eligible for SSA, taking the "subjective decision-making" burden away from SSA examiners and administrative law judges.

His argument assumes that people currently on Social Security Disability Insurance would be able to work. As testimony from other witnesses showed, however, the current requirements for SSDI are very strict and most people on SSDI have no other option to bring bread to the table.

Virginia Reno, Vice President for Income Security Policy at the National Academy of Social Insurance, said, "People who get benefits rely very heavily on them." Approximately one half of benefit recipients rely on SSDI as their entire income. They are not living rich lives. In fact, SSDI only puts recipients slightly above the poverty level. It is an "essential lifeline."

The Difficult SSDI Application Process

In order to receive SSDI benefits, applicants must show they have worked in jobs covered by Social Security, that they can no longer work due to a medical condition and that their disability is terminal, or has lasted or is expected to last for at least one year. On its website, the SSA drills the point home: "This is a strict definition of disability. Social Security program rules assume that working families have access to other resources to provide support during periods of short-term disabilities, including workers' compensation, insurance, savings and investment."

Yet, many people who need SSDI benefits are denied by the SSA. A 2011 Rand Institute study found that 70 to 80 percent of people who were denied SSDI benefits did not go back to work. And those whose applications weren't denied likely faced a long battle, possibly including many appeals.

According to Congressman Becerra, more than 1.5 million Americans are currently waiting for a decision on their applications. Some have lost their homes, even their lives, while waiting. That is why many Social Security disability lawyers and advocates of individuals with permanent disabilities are fighting hard against attempts to make the SSDI requirements even stricter.

When asked whether people were using SSDI as a way to find money during the recession, Steve Goss said, "Many people, through force of will, worked" even though they had a severe disability. Americans "have a strong work ethic -- most people would take a good paying job over benefits." But some people don't have a choice. For them, SSDI is their only means of meeting their financial needs.

Read the testimony from the meeting on Securing the Future of the Social Security Disability Insurance Program here:

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Securing the Future of the Social Security Disability Insurance Program
Testimony by Steve Goss, Chief Actuary, Social Security Administration
House Committee on Ways and Means, Subcommittee on Social Security
December 2, 2011
Chairman Johnson, Ranking Member Becerra, and members of the subcommittee, thank you
very much for the opportunity to speak to you today about the Social Security Disability
Insurance program. I would like to share thoughts on three topics: (1) the nature of disability
insurance; (2) the financial status of the Disability Insurance program; and (3) the “drivers” of
the cost of the Disability Insurance program.
(1) The Nature of Disability Insurance
Disability insurance is arguably the most difficult form of insurance to administer. It is easy to
determine whether an insured person has reached retirement age or has died. It is also easy to
determine whether a car is wrecked or a house destroyed. It is even relatively easy to determine
if health insurance should cover doctor and hospital bills. However, disability is by nature a very
subjective concept. Whether a “medically determinable impairment” eliminates the ability to
engage in any “substantial gainful activity” depends on a myriad of issues related to a person’s
residual functional capacity, past job experience, desire to work, and availability of suitable jobs.
All of these issues differ among individuals, across geographic regions, and over time.
The determination of whether a person is disabled is a highly complex process subject to human
judgment by the claimant, their representative, the claim examiner, and the medical consultant.
Becoming disabled can be a gradual process. A person may not qualify when they initially
apply, but may “cross the threshold” of disability during the appellate process or at a subsequent
age resulting in reapplication. Initial disability determinations and periodic continuing disability
reviews make administration of the Disability Insurance program an enormous challenge. The
Social Security Administration meets this challenge effectively and efficiently. Accuracy rates
in determinations are high, and multiple appeal steps are available to claimants. Yet, less than
2.5 percent of program expenditures are for administrative expense.
(2) The Financial Status of the Disability Insurance Program
The Disability Insurance Trust Fund assets expressed as a percent of annual program cost peaked
in 2003. The 2011 Trustees Report projects assets to become exhausted in 2018, with continuing
tax revenue sufficient to pay 86 percent of scheduled benefits thereafter. The unexpectedly large
COLA for December 2011 and a lower-than-expected increase in average earnings for 2010 may
exhaust trust fund reserves even earlier. For 2085, the Trustees Report projects continuing tax
revenue will be sufficient to pay 83 percent of scheduled benefits.
Sustainable solvency can be restored for the Disability Insurance program with a 16-percent
reduction in benefits, a 20-percent increase in revenue, or some combination of these changes.
Even in the absence of such change, a simple tax-rate reallocation between OASI and DI, as was
2
Social Security Trust Fund Ratios
Assets as Percent of Annual Cost
Trustees Report Intermediate Projections

Trust
Funds
done in 1994, could equalize the financial prospects of the trust funds. We estimate that
temporarily raising the Disability Insurance program’s share of the 12.4-percent OASDI payroll
tax rate from 1.8 to 2.2 percent for 2012 through 2024 and to 2.0 percent for 2025 through 2029
would make scheduled benefits payable for both OASI and DI beneficiaries until 2036.
Overall OASDI cost will rise over the next 20 years as the baby boomers retire and are replaced
in the working ages with lower-birth-rate generations born after 1965. The drop in birth rates
after 1965 will cause a permanent shift in the age distribution of the population with fewer
workers to support more elderly retirees.
Figure 2: OASDI Cost as Percent of GDP 1975-2085
2011 Trustees Report Intermediate Assumptions

Baby Boomers
reach ages 45-64
in 2010
3
However, the baby boomers already moved from young ages (25-44) in 1990, where few were
disabled, to older ages (45-64) in 2010, where many more are disabled. Thus, the 20-year
demographic shift in the age-distribution of the population has already occurred for DI.
Figure 3: DI Cost and Income as Percent of GDP 1975-2085
2011 Trustees Report Intermediate Assumptions

Baby Boomers
reach ages 45-64
in 2010
Baby Boomers
reach ages 25-44
in 1990
DI Cost
DI Income
Lower birth rates slow population growth at all ages. We project similar but slower growth rates
in both the workforce and DI beneficiaries for the future.
Figure 4: OASDI Workers and DI Beneficiaries 1975 to 2085

Millions
Workers
DI Beneficiaries
As a result, the number of workers per DI beneficiary is expected to be relatively stable in the
future. This means that restoring sustainable solvency for the DI program will not require
continually greater benefit cuts or revenue increases. A one-time change to offset the drop in
birth rate is all that is needed to sustain the DI program for the foreseeable future.
4
Figure 5: Workers per Disability Insurance Beneficiary

Baby Boomers
reach ages 45-64
in 2010
Baby Boomers
reach ages 25-44
in 1990
(3) The “Drivers” of the Cost of the Disability Insurance Program
Several drivers specific to DI program cost will be changing in the future. The first important
driver is the size of the disability-insured population. Since 1970, this population grew
explosively as increasing numbers of women worked consistently and stayed insured.
Figure
6:

In the future, we project that men will be less likely to be insured, reflecting increased
restrictions on undocumented aliens after 2001, and insured rates for women will stabilize close
to men. This change will substantially slow the growth in the cost of the DI program.
The second important driver of DI cost is rate at which insured workers become newly disabled.
Changes in the rate of disability incidence are best seen by excluding the effects of any change in
the age-distribution of the general population. For men, this age-adjusted incidence rate has
5
averaged somewhat over five new disability awards per thousand exposed (insured but not
already disabled) workers and has seldom been below this level. Since 1980, the age-adjusted
incidence rate for women has been moving up to a level much closer to men. We expect that
male and female age-adjusted disability incidence rates will be fairly stable in the future.

A more careful look at past fluctuations in the overall age-sex-adjusted disability incidence rate
reveals a number of specific economic and policy drivers that have influenced disability cost.
Periodic economic recessions, as illustrated by the civilian unemployment rate in bright orange
in the figure below, have been associated with temporary increases in disability incidence.

The very recent recession of 2008-2009 resulted in an increase in disability incidence that was
exceeded only by the incidence rate in 1975. One apparent exception to the relationship between
disability incidence and economic recessions is the strong recession of 1981-1982. Here the
effect of the recession appears to have been offset by the net effects of the 1980 Amendments,
which: (1) sharply increased the levels of pre-effectuation review of disability allowances and
continuing disability reviews of current beneficiaries; (2) introduced the extended period of
disability to encourage work; and (3) lowered the maximum family benefit for DI beneficiaries.
Additional policy changes over the years had significant effects on disability incidence. Doubledigit
ad-hoc benefit increases in 1970 through 1974 made disability benefits more attractive.
The 1984 Amendments may have countered the effects of a strong economic recovery with
increased emphasis on multiple impairments and mental listings, and requirement to show
medical improvement for benefit cessation. The SSI outreach to disabled adults likely added to
the effects of the 1990-1991 recession. Also, the 1996 Amendments may have partially
counteracted the effects of a strong economic recovery with elimination of drug addiction and
alcoholism as disabling impairments, and effecting a 7-year plan to eliminate a backlog of
continuing disability reviews. Future policy changes and economic cycles will undoubtedly
continue to cause fluctuations in disability incidence rates.
Disability incidence rates tell us the rate at which healthy workers become newly disabled. The
cost of providing benefits to disabled workers also depends on how long their disability lasts.
Disability incidence and length of the period of disability can be combined by considering the
number of insured workers who are currently disabled at each age, regardless of how long ago
they became newly disables. Disability prevalence rates are simply the percent of the insured
population at a given age that is currently receiving disabled worker benefits, regardless of when
benefits started. Age-sex-adjusted disability prevalence rates eliminate the effects of changing
population age distribution and isolate the effects of disability-specific drivers.
Figure
9:
DI
Disabled
Workers
per
1,000
Insured
Population

The figure above shows that the age-sex adjusted disability prevalence rate for men increased by
about a third between 1990 and 2010, even though age-sex-adjusted incidence rates were fairly
stable over the observed period 1970-2010. Female prevalence rates increased even more
because their age-sex-adjusted incidence rates did increase over the observed period.
The reason for the rise in male age-sex-adjusted disability prevalence between 1990 and 2010
lies in the age distribution of disability incidence rates. While the overall age-sex-adjusted
incidence rate was fairly stable for men, a relative shift toward new disabled-worker awards at
younger ages explains the prevalence increase. All else being equal, shifting new disability
incidence from ages 45-64 to ages 25-44 will increase the total number of beneficiaries, or
prevalence, because the younger awardees may remain disabled for many more years.
The figure below illustrates the degree to which disability incidence rates at ages 25-44 grew
relative to incidence rates at ages 45-64, both for men and women, between 1980 and 2010. The
shift toward relatively lower ages of disability incidence was even stronger for women than for
men. This, combined with the age-sex-adjusted increase in disability incidence for women,
largely explains the historical increase in prevalence rates for women.
The shift toward relatively lower ages in disability incidence rates stabilized after 2000. We
expect that the relative incidence rates by age will continue to be stable in the future. This,
combined with stable age-sex-adjusted overall incidence rates, explains our relatively stable
projection of future age-sex-adjusted disability prevalence rates.
Figure 10: Young Incidence Rate (ages 25-44)
as Percent of Older Incidence Rate (ages 45-64)

Male Female
While we feel fairly confident about projections for the future, two questions remain about the past:
(1) why did disability incidence grow at younger ages relative to older ages; and (2) are there any
special characteristics of the additional, younger disabled worker awards?
Due to the complexity of the disability criteria and determination process, and the nature of
disability, it is very difficult to determine why incidence rates at younger ages rose from the levels in
8
1975-1985 to the levels in 2000-2010. However, we can gain some insight into both questions by
considering the characteristics of younger versus older disability beneficiaries over time. For
example, we can consider (a) relative benefit levels across ages and (b) the distribution of primary
diagnosis for younger versus older disabled worker awards.
The chart below provides an interesting comparison of benefit levels for younger versus older
disabled worker beneficiaries in 1985 and 2010. For each group, the average benefit level is
expressed as a percentage of the national average wage index (AWI) for the year.
In 1985, the average benefit level for all younger beneficiaries (age 25-44) was very close to the
average benefit level of older beneficiaries (45-64). By 2010, the average benefit level for younger
beneficiaries was 24 percent lower than that for older beneficiaries. The change is similar for men
and women considered separately. This suggests that the increase in younger disabled worker
awards between 1985 and 2010 came from insured workers with low career-average earnings levels,
either because they were low paid workers or because they had intermittent employment. The
implication for future average benefit levels is also interesting. As the recent younger beneficiaries
with low benefit levels age, they will gradually restrain the growth in the average benefit level for
older beneficiaries in 2030 and later. Thus, the increase in disability prevalence from younger
disabled worker awards will be partly mitigated by lower future benefit levels.
Figure 11: Disabled Worker Benefits as Percent of Average Wage
1985 and 2010 (ratio of 25-44 benefit to 45-64 benefit)

Male and Female Combined Male Female
1985 2010
A second characteristic we can consider regarding younger versus older disabled worker
beneficiaries is any change in awards by category of medically determinable impairment
(primary diagnosis code). The figure below shows that even though the number of female
disabled worker awards at younger ages has risen rapidly, the distribution by diagnosis has
remained very stable. The pattern for younger men is very similar.
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Figure
12:
Distribution
of
New
Female
Disabled
Workers
at
Ages
30-­‐39
by
Primary
Diagnosis
At higher ages, female disabled worker awards show increases in musculoskeletal diagnoses and
decreases in circulatory diagnoses. The patterns for males are also similar at these older ages.
These effects do not appear to explain the increase in young awards.
Figure
13:
Distribution
of
New
Female
Disabled
Workers
at
Ages
50-­‐59
by
Primary
Diagnosis
10
Conclusion
Disability insurance is highly complex and challenging to administer. General demographic
changes have increased the cost of the DI program over the past 20 years in much the same way
that demographics will raise OASI and Medicare costs over the next 20 years. Disability insured
rates have increased substantially for women, as have age-sex-adjusted incidence rates for
younger insured women, further contributing to higher DI cost. However, all of these trends
have stabilized or are expected to do so in the future.
We project that the number of DI beneficiaries will continue to increase in the future, but only at
about the rate of increase in workers. Thus, the current shortfall in tax income compared to DI
program cost is projected to be stable in the future. Restoring sustainable solvency for the DI
program requires about a 16-percent reduction in benefits, a 20-percent increase in revenue, or
some combination of these changes. Even if such changes are not effected soon, a modest
reallocation of the total OASDI payroll tax can be enacted prior to 2018 that would equalize the
actuarial status of the OASI and DI programs, allowing both to pay full scheduled benefits until
2036.

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